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Income Tax Appellate Tribunal, “D” Bench, Mumbai
THE INCOME TAX APPELLATE TRIBUNAL “D” Bench, Mumbai Shri Shamim Yahya (AM) & Shri Pavan Kumar Gadale (JM)
I.T.A. No. 3665/Mum/2014 (Assessment Year 2008-09)
Deutsche Investments India CIT-6 Vs. Private Limited Aayakar Bhavan Nirlon Knowledge Park M.K. Road 3rd Floor, Bloc B-1, Off Churchgate Western Express Highway Mumbai-400 020. Goregaon East Mumbai-400 009.
PAN : AACCD1765E (Appellant) (Respondent)
Assessee by Shri Percy Pardiwala Department by Shri K. Madhu Sudan Date of Hearing 16.09.2020 Date of Pronouncement 06.11.2020
O R D E R Per Shamim Yahya (AM) :- This is an appeal by the assessee directed against order of Learned Commissioner of Income Tax [in short learned CIT] dated 26.3.2014 and pertains to assessment year 2008-09.
The grounds of appeal read as under :- 1. (a) The Commissioner of Income Tax -6, Mumbai (hereinafter referred to as CIT) erred in holding that the provisions of section 263 of the Income Tax Act, 1961 ("the Act") were applicable to the facts of the appellant's case. The order dated 26 March, 2014 passed by the CIT is bad in law, void, in excess of and/or want of jurisdiction and otherwise illegal. (b) The CIT erred in setting aside the assessment made vide order under section 143(3) dated 15 December, 2011 and holding that it was erroneous and prejudicial to the interest of the revenue. The appellants pray that the order of the CIT passed under section 263 of the Act be quashed. 2. The CIT erred in directing AO to frame fresh assessment order (de novo) after giving reasonable opportunity of hearing to the appellants.
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The CIT erred in directing the AO to examine the issues raised vide order under section 263 and take appropriate action as warranted by the facts and circumstances of the case.
The CIT erred in setting aside the regular assessment on the issue of broken period interest and holding that broken period interest paid on purchase of securities was required to be considered at the time of valuing closing stock and then work out the loss/profit from the business income accordingly.
The CIT erred setting aside the regular assessment on the issue of claim for debenture issue expenses.
The CIT erred in setting aside the regular assessment on the issue of claim of deduction for Mark to Market losses in relation to Equity Linked Notes.
Brief facts are that the assessing officer in this case passed an order under section 143(3) of the I.T. Act on 15.11.2011. Upon this assessment order, the learned CIT invoked his jurisdiction under section 263 of the I.T. Act. In this regard notice under section 263 was issued, after considering the assessee reply learned CIT passed the following order under section 263 of the IT Act :-
I have perused the details submitted by the assesses. I do not agree with the contention of the assessee that assessment order is neither erroneous nor prejudicial to the interest of revenue. The reasons for coming to this conclusion are as under :
(i) As regards, the contention in the show cause notice that RBI being regulator of NBFCs (for assessee also RBI is the regulator, as it is a NBFC) for the assessee and AO did not verify whether the assessee has complied with the Guidelines issued by RBI or not. The issue is not whether violation of Guidelines was observed by the undersigned or not but the basic fact remains that A.O. did not call for any details as to what are the Guidelines issued by RBI which are applicable to the NBFC and failed to verify whether all the conditions stipulated therein have been made. The A.O. has not done the assessment in a proper manner and that was the short point which was being emphasized in the show cause notice.
I accept the argument of the assessee that interest has been shown on accrual basis even after the due date of coupon period till 31.03.2008. The order is neither erroneous nor prejudicial to the interest of revenue on this point. I also accept the argument of the assessee that it was granted license/regulator of NBFC without any permission to invite public deposits. The assessee company was therefore not required to maintain certain
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securities in the form of SLR and has therefore correctly considered all the investments as "current investment" and treated them as stock in trade. The assessee's contention in this regard has also been found correct.
(ii) As regards broken period interest, the case laws cited by the assessee [Citibank N.A. (Civil Appeal No. 1549 of 2006 dated 12th August, 2008), American Express International Banking Corporation (258 ITR 601) (Bombay), Deutsche Bank AG (Income Tax reference No.500 of 1997) ] are not applicable to the facts of the present case. In the present case, it is not the case that broken period interest realized on sales have been brought to tax as income, while deduction on account of broken period interest for purchase is being disallowed in entirety. In the facts of the present case, what ought to have been considered for disallowance by the AO is broken period interest on securities lying unsold and shown in the closing stock. Since, broken period interest is part of the purchase price. To the extent it pertains to security which remains unsold on 31st March and is reflected in closing stock, such security has to be valued after including the broken period interest. Broken period interest on such security will be allowed as a deduction only at the time of sate of these securities. These facts are totally at variance with cases cited by the assessee.
In the present case, assessee has paid Rs,9,41,67/- as broken period interest for 11.3% GOI Bonds 2010. Likewise, Rs.1,58,01,984/- has been paid as broken period interest at the time of purchase of bonds of Housing Dev. Finance Corpn. Both the above bonds were lying unsold as on 31.03.2008. Therefore, this interest being part of purchase consideration was required to be considered at the time of valuing closing stock and then work out the loss/profit from the business income accordingly.
(iii) As regards disallowance on account of provision for depreciation on the investment is concerned, this aspect was referred only to point out that A.O. acted in a mechanical and perfunctory manner. If the securities are held as "stock-in-trade" which is the present case, there is no doubt in my mind that assessee is entitled for depreciation of investment which is nothing but difference in cost and market value at the end of financial year. The assessee is entitled to value "stock-in-trade" at cost or market price whichever is lower. There is no doubt in my mind regarding allowability of claim on depreciation of investment. The CIT(A) has correctly allowed the appeal of the assessee in the facts and circumstances of the case. I agree the assessee was entitled for depreciation of investments fully to the extent of claim. I agree with the assessee that no error in the assessment order prejudice to the revenue has been caused on account of this issue.
(iv) As regards debenture issue expenses, the issue is not whether the deduction is allowable or not. The issue is whether claim of the assessee justified in the facts and circumstances of the case to the extent of claim of deduction. The A.O. did not examine this aspect at all in the course of scrutiny, and failed to call for relevant details and examine their genuineness. The fact that assessee has given these detail during the course of revision proceedings itself shows that what was being alleged in the show
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cause notice is correct. The AO has failed to call for details of debenture issue expenses before allowing deduction.
(v) Likewise, it is noticed that no inquiry whatsoever has been caused before allowing claim of deduction of Rs.1,42,44,981/-. How this loss arose was necessary for A.O. to examine before allowing the claim? The AO has failed to verify how this loss pertaining to Equity Linked Notes has been allowable and how it arose in the first instance. From the details fifed during revision proceedings, it is apparent that no details were called for in the course of assessment proceedings. It was argued that assessee has rightly claimed the mark to market loss, in the light of decisions of Bank of Bahrain and Kuwait, Kotak Mahindra Investment Ltd.
Prima-facie, AO has failed to carry out relevant and meaningful inquiries before allowing this loss on the basis of mark to market to the Nifty option. Whether this loss claimed in the computation is notional expenditure or not ought to have been examined by A.O. in light of Instruction No.3/2010 dated 23.03.2010 issued by CBDT which is binding on the A.O. The A.O. as stated above failed to call for relevant details. This loss being arrived at for open derivative position need to be considered as per Instruction No. 3/2010 of the CBDT. The A.O. failed to follow instructions of the CBDT on this regard.
In the light of above discussions, I am of considered opinion that assessment order is erroneous and prejudicial to the interest of the revenue on account of failure of the AO to carry out relevant and meaningful inquiries. This inference is also supported by ratio of various decisions of Malabar Industrial Co. Ltd. vs CIT 243 ITR 83 (SC), CIT vs Max India Ltd. 295 ITR 282(SC) CIT Vs Mangal Castings 303 ITR 23(P&H), CIT v. Kohinoor Tobacco Products(P)Ltd.[1998] 234 ITR 557, CIT v. Mahavar Traders[1996] 220 ITR 167(MP), Duggal & Co.v. CIT[1996] 220 ITR 456, CIT vs MEPCO Industries Ltd 294 ITR 121 (Mad.), Meerut Roller Flour Mills Ltd vs C1T[2013] 3S Taxman.com 183(AH.), Bharti Hexacom Ltd v CIT [2013] 33 Taxman.com.153(Cat.), M.I. Overseas Ltd v DIT (Int. Tax)[2012] 28 Taxman. com.279(Uttarakhand), Bharat Overseas Bank Ltd v CIT[2012] 26 Taxman.com 330(Chennai), CIT v Harsh J Punjabi 345 ITR 451 (Dei.), CIT v Infosys Techn. Ltd 17 Taxman.com 203 & Sripan Land Dev.(P) Ltd v CIT(2011) Taxman.com 429(Mum ITAT). I am satisfied that it is a fit case for revision u/s 263 of the Act as the assessment order is erroneous and prejudicial to the interest of the revenue on account of failure of AO to carry out relevant and meaningful inquiries, i, therefore, set-aside the assessment order with the flowing directions:
The AO is directed to frame fresh assessment order (de novo) in Accordance with provisions of (aw after giving reasonable opportunity of hearing to the assesses. The AO is directed to examine all the issues raised above and take appropriate action as warranted by the facts and circumstances of the case in accordance with law, in the course of completing assessment.”
Against the above order assessee is in appeal before us.
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We have heard both the counsel perused the records. Learned senior counsel of the assessee Shri Persi Pardiwala submitted that the assessing officer has passed the assessment order after due and proper enquiry. He submitted that assessee officer has duly issued following notices.
Notice u/s. 142(1) dated 12.1.2010 Notice u/s. 143(2) dated 24.8.2011
The learned counsel submitted that the return was originally filed electronically. Hence, computation of income was not electronically filed. Subsequently upon assessing officer’s enquiry and requirement the computation of income was duly filed in the course of assessment. That in the computation of income both the matters i.e. broken period interest and depreciation on value of investment, which are subject matter of the CIT's deliberation under section 263 order where detailed in the notes. In this regard learned counsel of the assessee submitted that honourable Bombay High Court in the case of State Bank of India Vs. ACIT (W.P No. 271 of 2018 vide order dated 18.6.2018) has held that if the assessment order is passed after considering the computation of income in which the matters are mentioned, it cannot be held that assessment order was passed without any application of mind on the points mentioned in the computation of income. In this regard learned counsel the assessee submits that following notes were duly mentioned in the computation of income. 1) The company was incorporated on 24th May. 2005. The principal business of the company is to undertake activities of a loan/investment company. The company had applied for registration with RBI as a Non Banking Financial Company which has been received on 2nd August. 2007. Company has commenced its business on January 2008. 2) In accordance with its objects, the company has placed deposits with bank and the entire interest income has been offered to tax. 3) Deduction has been claimed for broken period interest of Rs. 16,743,650 paid on purchase of securities lying in the inventory as on 31.03.08 relying on the judgement of the Hon'ble Bombay High Court in the case of American Express Bank reported in 258 ITR 601.
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4) During the year the company had issued Equity Linked Notes a liability product offered by the company. The company marks to market the open positions at the year end and the liability with respect to mark to market loss is recognized in the profit and loss account in accordance with accounting prudence norms. For the current year, the company has recocgnised an amount of INR 14,244,981 as a mark to market liability in its profit and loss account towards the subject product. The same has accordingly been claimed as lax allowable in the return in the return of income for the current year i.e. AY 2008-09.
Further, learned counsel of the submitted that as regards the issue of broken period interest is concerned, the same is duly covered in favour of the assessee by the following decisions from honourable Bombay High Court, honourable Supreme Court :- • CIT Vs. Deutsche Bank A.G. (SLP No. 345 of 2004) (SC) • CIT Vs. Deutsche bank AG (Income Tax Ref. No. 500 of 1997) (Bom HC) • Citibank NA (Civil Appeal No. 1549 of 2006 dt. 12.8.2008)(SC)
Learned Counsel of the assessee submitted that learned CIT(A) totally erred that these decisions are not applicable on the facts of this case. He submitted that in the case of Citibank NA (supra) Hon'ble Apex Court has answered the following question in the affirmative :-
“Whether on the facts and in the circumstances of the case, the High Court was right in law in holding that the interest paid for broken period should not be considered as part of the purchase price, but should be allowed as revenue expenditure in the year of purchase of securities.”
Hence, learned counsel submitted that when the entire interest has to be allowed as revenue expenditure and is not to be a part of purchase price the learned CIT(A) view is totally erroneous that interest have to be allocated to unsold investment.
As regards the marked to market loss is concerned learned counsel of the assessee submitted that this was also given in detail in computation of income. In this regard, he mentioned that following detail were submitted before learned CIT(A) which covers the issue in favour of the assessee. “a) During the year under consideration, the company has issued Equity Linked Notes ('ELN'), a liability product offered by the Company. The
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Company marks to market the open positions at the end of the year in respect of ELN and any liability with respect of mark to market loss, if any, is recognized in the profit and loss account toward the subject product, which has been claimed as deduction.
b) The Company has recognized an amount of Rs. 14,244,981 as a mark to market loss in its profit and loss account. The details of the same are enclosed at page 173 of the paper book).
c) In the captioned notice, it has been stated that the mark to market loss arising out the Equity Linked Notes, is notional in nature and hence should not be allowed as deduction in view of the CBDT Instruction No. 3/2010 dated 23 March 2010 (copy enclosed at pages 174 to 175 of the paper book).
d) In this connection, we wish to rely on the decision of Mumbai Tribunal in the case of The DCIT vs. Kotak Mahindra Investment Ltd. (ITA No. 1502/M/2012) dated 3 May 2013 (copy enclosed at pages 176 to 184 of the paper book), wherein the Tribunal has held that the mark to market losses in respect of future contracts was allowable as deduction.
e) As regards, to the CBDT instruction, we wish to submit that the instruction was with respect to the loss on forex derivative transaction and applicability of section 43 of the Income tax Act. Equity linked notes are not derivatives and are in the nature of bonds and hence the CBDT instruction relating to the derivatives is not applicable in the instant case.
f) Further reliance is placed On the decision of Special Bench of Mumbai ITAT in the case DCIT v. Bank of Bahrain and Kuwait, ((2010) (41 SOT 290) (copy enclosed at pages 185 to 204 of the paper book) wherein it has been held that Mark to Market losses in respect of forward foreign exchange contracts debited to profit and loss account is allowable as deduction. This view has also been upheld by the Hon'ble Supreme Court in the case of Woodward Governor India (I) P. Ltd, (2009) 312 ITR 254 (Supreme Court) (copy enclosed at pages 203 to 215 of the paper book).
g) In view of the above, the marked to market loss debited to profit and loss account of the Company has been rightly allowed as deduction.”
Per contra, learned Departmental Representative Shri K. Mahu Sudan submitted that the Assessing Officer has not made necessary inquiry. He submitted that learned CIT’s direction is very much correct and in accordance Explanation-2 inserted in section 263. He submitted that the said explanation should be treated as retrospective. Furthermore, learned Departmental Representative relied upon the following case laws for his preposition that no prejudice is being caused to the assessee as a matter is being remitted only for de novo examination.
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• Supreme Court decision in Raj Mandir Estate Vs. Pr.CIT • Delhi High Court decision in Gee Vee Enterprises • Arvee International Vs. Addl. CIT (ITAT, Mum)101 ITD 495
In the rejoinder, learned senior counsel of the assessee submitted that in various case laws it has been held that Explanation (2) to section 263 is prospective. Moreover, he pleaded that the matter having been dealt with in computation of income and case laws also mentioned therein, it cannot be said that the Assessing Officer has not applied his mind. He further relied upon Hon'ble Delhi High Court decision in the case of ITO Vs. D.G. Housing Projects (343 ITR 329).
Upon careful consideration, we may gainfully refer to provisions of section 263 of the IT Act :- 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner
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or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.—In computing the period of limitation for the purposes of sub- section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.
We find that the provision of section 263 can be invoked by learned CIT if the order passed by the Assessing Officer is erroneous in so far it is prejudicial to the interest of the revenue. So it was incumbent upon learned CIT to give a finding that the order of the Assessing Officer is both erroneous and prejudicial to the interest of revenue. Hence, learned CIT(A)’s direction to make further examination without pointing out that order is both erroneous and prejudicial to the interest of revenue is not sustainable.
We note here that learned CIT’s further objection is that the Assessing Officer has not examined whether RBI guidelines in this regard has been followed by the assessee or not. Here we note that there is no presumption that non-following of RBI guidelines in an assessment will result in an order which
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is prejudicial to the interest of revenue. The RBI guidelines and the prudential norms are not designed to pluck revenue leakage from income tax point of view. These are mandate to ensure that the assessee follows proper Banking norms. Hence, learned CIT’s inference that non examination of adherence to RBI guidelines by the Assessing Officer has resulted in a order which is erroneous in so far as it is prejudice to the interest of revenue is liable to be set aside. Moreover as we have already noted the Explanation (2) in section 263 has been added from 1.6.2015 and the same is not operative in the period under consideration.
We further note that on the issue of broken period interest and mark to market loss, learned Counsel of the assessee has submitted that the necessary details were given in the computation of income and on the touchstone of Hon'ble Bombay High Court decision in the case of State Bank of India (supra) it cannot be said that the Assessing Officer has not applied his mind on this issue. He submits that the assessee has duly submitted case laws in favour of the assessee on these cases, which the Assessing Officer has duly accepted. In this regard we note that Hon'ble Bombay High Court in the case of State Bank of India (supra) has expounded as under :-
“Moreover, the Assessment order in regular assessment proceedings in terms disallowed some of the claims made for deduction under Section 143(3) of the Act. Therefore, in the present facts, we are prima-facie of the view that, the Assessing Officer has by necessary implication allowed the claim. Moreover, the basic document for completing the assessment under Section 143(3) of the Act is the computation of income. Therefore, to the extent the claims made for deduction in the computation of come, were disallowed by the Assessing Officer, discussion on the same is found in the assessment order. It is an accepted position that the assessment orders would necessarily deal only with the claims being disallowed and not with the claims being allowed. This is for the reason as observed by the Gujarat High Court in CIT Vs. Nirma Chemicals Ltd 309 ITR 67, that if the Assessing Officer was to deal with all the claims which were to be allowed in the assessment order, the result would be an epictome. This is so, as it would cast an impossible burden upon the Assessing Officer considering his workload and the period of limitation. There was also no reason in the present facts for the Assessing Officer to ask any queries in respect of this claim of the petitioner, as the basic document viz. computation of income at note 21 (Assessment Year 2013-14) and note 22 (Assessment Year 2014-15) thereof explained the basis
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of the claim being made to the satisfaction of the Assessing Officer. Thus, it must necessarily be inferred that the Assessing Officer has applied his mind at the time of passing an assessment order to this particular claim made in the basic document viz. computation of the income by not disallowing it in proceedings under Section 143(3) of the Act as he was satisfied with the basis of the claim as indicated in that very document. Therefore, where he accepts the claim made, the occasion to ask questions on it will not arise nor does it have to be indicated in the order passed in the regular assessment proceedings.”
Thus on the touchstone of above Hon'ble Bombay High Court decision when the issues were given in note in the computation of income and case laws were referred, it cannot be said that Assessing Officer has not examined the issues and applied his mind.
As regards the broken period interest is concerned we note that the same was duly given in note of computation of income as under :-
Deduction has been claimed for broken period interest of Rs. 16,743,650 paid on purchase of securities lying in the inventory as on 31.03.08 relying on the judgement of the Hon'ble Bombay High Court in the case of American Express Bank reported in 258 ITR 601.
Hence, the assessee has duly explained the quantum of broken period interest being claimed and the basis for the same has been explained to be Hon'ble Jurisdictional High Court in the case of American Express Bank (supra). We note the learned CIT’s view is that Assessing Officer has not enquired and applied his mind in as much as the same is not dealt with in the assessment order. On the touchstone of Hon'ble Bombay High Court decision in the case of State Bank of India Vs. ACIT (supra) it cannot be said that the Assessing Officer has not applied his mind on this issue. Once it is held that the Assessing Officer has after application of mind taken a view, learned CIT cannot exercise his jurisdiction u/s. 263 of the Act unless the view is ex facie not tenable. As held by Hon'ble Apex Court in the case of M/s. Malabar Industrial Company Ltd. Vs. CIT (243 ITR 83), if two views are possible and one view is adopted by the Assessing Officer with which learned CIT(A) does
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not agree with, the assessment cannot be held to be prejudicial and erroneous to the interest of the revenue.
Furthermore, on merits of the issue learned CIT(A) has held that the decision of Hon'ble Jurisdictional High Court in American Express Bank (supra) and Deutsche Bank AG (supra) are not applicable on the facts of the case. However, even after holding so learned CIT(A) concluded that the Assessing Officer has failed to carry out relevant and meaningful inquiry and Assessing Officer has been directed to examine all the issues raised to make a new assessment. This concluding action of learned CIT(A) shows that he is himself is not sure that decision of Hon'ble Jurisdictional High Court referred by assessee are not applicable in this case. Moreover, as evidently brought by the submission of learned Counsel of the assessee as per the decision of Hon'ble Bombay High Court & Hon'ble Apex Court, broken period interest have to be allowed as revenue expense in the year.
Similarly, the issue of mark to market loss is concerned assessee has duly given note in computation of income as under :-
During the year the company had issued Equity Linked Notes a liability product offered by the company. The company marks to market the open positions at the year end and the liability with respect to mark to market loss is recognized in the profit and loss account in accordance with accounting prudence norms. For the current year, the company has recocgnised an amount of INR 14,244,981 as a mark to market liability in its profit and loss account towards the subject product. The same has accordingly been claimed as lax allowable in the return in the return of income for the current year i.e. AY 2008-09.
Thus in the aforesaid note of computation of income the assessee has explained the accounting policy adopted for recognising mark to market loss and the assessee has quantified the amount also. On the touchstone of the Hon'ble Bombay High Court decision referred above State Bank of India Vs. ACIT (supra) it cannot be held that the Assessing Officer has not applied his mind or made enquiry on the issue. As held above once it is held that the Assessing Officer has applied his mind and has taken one of the possible view,
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learned CIT cannot invoke its jurisdiction u/s. 263 of the Act. Moreover, in the order u/s. 263 learned CIT(A) has nowhere dislodged the detail submission on this issue by the assessee, and the case laws which have been claimed by the assessee in favour of the assessee being Special bench decision in the case of Bank of Bahrain and Kuwait (supra) and also the reference to Hon'ble Apex Court decision in the case of Woodward Governor India Pvt. Ltd. (supra). Hence, the view adopted by the Assessing Officer cannot be said to be ex facie untenable.
Thus once it is held that the Assessing Officer has adopted one of the two possible view with which learned CIT does not agree, the same does not give learned CIT(A) jurisdiction to exercise revisionary power u/s. 263 of the Act. Moreover, as we have already held above that by asking the Assessing Officer to make further examination without any finding about the order being erroneous and prejudicial to the interest of revenue the learned CIT(A) has clearly erred and hence his order is not sustainable. Explanation (2) added to section 263 of the Act cannot come to the rescue of revenue as the same is not applicable for the current assessment year.
More so, because we have held that the Assessing Officer’s view is a possible view. On the touchstone of Hon'ble Bombay High Court decision in the case of State Bank of India (supra), the issue having been detailed in the computation of income and case law referred therein and the Assessing Officer having accepted that, it cannot be said that the Assessing Officer has not applied his mind in that issue. Thus in the background of the aforesaid discussion and precedent, we are of the considered opinion that learned CIT could not have legally assumed jurisdiction u/s. 263 of the Act to ask the Assessing Officer to make a denovo examination by making further examination without finding order being erroneous as well as prejudicial to the interest of revenue. We further note that learned Counsel of the assessee has given case laws for the proposition that the method adopted by assessee for claiming deduction for broken period expenses and mark to market loss is
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having judicial acceptance. These were also before learned CIT(A), who has not cogently dislodged the reliance placed on the case law.
The case law of Raj Mandir Estate (supra) referred by learned Departmental Representative was with respect to bogus share capital and share premium allowed by the Assessing Officer without proper enquiry and in that context on the facts of that case Hon'ble Apex Court has observed that no prejudice will be caused to the assessee by re examination by the Assessing Officer. This case law is not applicable on the facts here. The case law from Hon'ble Delhi High Court in the case of Gee Vee Enterprises (99 ITR 375) is not applicable on the facts of this case. This case law was duly referred to in Hon'ble Delhi High Court decision in the case of ITO Vs. D.G. Housing Projects Ltd. (343 ITR 329) and Hon'ble High Court has observed as under :- “It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase “prejudicial to the interest of Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.”
The above case law duly supports the case of the assessee.
Since the issue has been decided by following Hon'ble Supreme Court & Hon'ble Bombay High Court decisions directly applicable, dealing with other case laws referred by learned Departmental Representative is only of academic interest.
We have already quashed the order of learned CIT(A) on the ground that assumption of jurisdiction on matters for denovo examination by the Assessing
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Officer is not legally sustainable, we are of the opinion that adjudicating upon merits of the issues is only of academic interest and we are not engaging into the same.
In the result, this appeal by the assessee stands allowed.
Order pronounced under Rule 34(4) of the ITAT Rules on 06.11.2020.
Sd/- Sd/- (PAVAN KUMAR GADALE) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 06/10/2020 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai